Women-owned businesses have been the fastest growing segment in the U.S. economy for the past two decades, yet women and minorities are still underrepresented in entrepreneurship as a whole, as shown in Figure 1. Demographic disparities, historical discrimination, and other structural factors can impede progress and hasten failure. For example, highly rated businesses in Black-majority neighborhoods earn less revenue than businesses with similar ratings outside of Black neighborhoods.1
Because of this disparity in “normal” times, the recession caused by Covid-19 is already experiencing a similar disproportionate negative impact on businesses owned by women and minorities.2 These businesses seem to be struggling in part because they entered the lockdown in less secure shape than many other companies with greater financial reserves. As one measure, in April, when businesses in some parts of the country were being hard hit by the pandemic, the share of minority business owners reporting that they stopped working was a significantly higher percentage of total businesses than white business owners. In addition, they may lack a traditional banking partner and access to loans that would enable them to shift their businesses online rather than close altogether.3
Women and minorities also apparently benefited less from the U.S. Treasury Department pandemic-related Paycheck Protection Program (PPP), garnering fewer approvals and less funding. The government did not collect data on race and gender of recipients, but 75% of loans allocated in the first phase went to businesses in census tracts where a majority of residents are white, even though only 68% of the population lives in majority-white areas. The expiration for PPP loans on July 31 prompted several proposals for additional relief, some of it intended to address underfunded businesses that require additional assistance.4
What about VC funding?
Entrepreneurs who are women and people of color find that they face a funding gap when seeking venture capital. Men still get the largest share of funding, with only 2% of capital going to U.S.-based female-only founder teams. Of the 2%, women of color get only a fraction, according to PitchBook. At least in part, the reason this chasm exists is because of a perceptual mismatch between what VC funders view as ideas that would be “a good fit” — and those that women and minorities recognize as filling a void. In fact, women and minority business founders delivered returns at least good as male founders.5 Exacerbating this mismatch is the asset management industry itself, where women and minorities manage just 1.3% of all assets.6
Rather than waiting around for a perceptual shift from the industry, women and minority founders are exploring alternative funding sources, developed specifically to address this gap, and creating community networks. Other organizations see ways to bridge the mismatched perceptions of investors and entrepreneurs by bringing the two communities together.7
1 “Businesses owned by women and minorities have grown. Will COVID-19 undo that?” by Sifan Liu and Joseph Parilla, Brookings, April 14, 2020 https://www.brookings.edu/research/businesses-owned-by-women-and-minorities-have-grown-will-covid-19-undo-that/ Also see https://www.brookings.edu/research/five-star-reviews-one-star-profits-the-devaluation-of-businesses-in-black-communities
2 Ibid, Liu and Parilla
3 “Coronavirus Is Hitting Black Business Owners Hardest” by Lauren Leatherby, The New York Times
4 “The PPP Has Expired: Here’s What Small Businesses Can Expect In The Second Stimulus” by Robin Saks Frankel, Forbes Advisor, August 11, 2020 https://www.forbes.com/sites/advisor/2020/08/11/the-ppp-has-expired-heres-what-small-businesses-can-expect-in-the-second-stimulus/#1f2e4541523c
5 “VC’s Are ‘Missing a Trillion-Dollar Opportunity’” by Amy Whyte, Institutional Investor, October 23, 2019 https://www.institutionalinvestor.com/article/b1hq9tj33rmv2x/VCs-Are-Missing-a-Trillion-Dollar-Opportunity “Invest in You: Ready. Set. Grow. This underfunded female demographic is launching the most start-ups in America, far from Silicon Valley” by Ellen Sheng, CNBC Town Hall Special, February 25, 2020
6 “We Must Turn Our Anger and Pain Into Action” by Amy Whyte, Institutional Investor, June 12, 2020 https://www.institutionalinvestor.com/article/b1m1bpwjk13l0l/We-Must-Turn-Our-Anger-and-Pain-Into-Action
7 Ibid., Sheng
